Tokyo: Suzuki Motor wants to end its two-year-old alliance with Volkswagen after the German carmaker accused it of violating their partnership pact by agreeing a diesel engine deal with Italy’s Fiat.

An exit by Suzuki would end an alliance forged in December 2009 that was billed as a partnership of equals to bolster VW’s presence in India for small cars and give Suzuki access to hybrid and diesel technology it could not afford to develop on its own.

But the partnership has so far been beset with problems and failed to deliver any meaningful progress for either company.

Suzuki chairman and CEO Osamu Suzuki offered to buy Volkswagen’s 19.9% stake in his company with cash on hand, and in return, promised to offload its 1.5% stake in Volkswagen back to its estranged German partner.

Volkswagen agreed to pay around €1.7 billion ($2.3 billion) for the stake as part of a strategic partnership with the maker of the Jimmy and Grand Vitara. The stake is now worth around $2.2 billion, while Suzuki’s Volkswagen stake is worth about $950 million.

“We don’t have any projects in the works from the alliance," the Suzuki chairman said at a press briefing in Tokyo. “We will try to ensure an harmonious parting," he added.

In a separate statement, Volkswagen said it had no intention of selling the shares and asked that cooperation between the two continue.

“A break-up with Suzuki would be bad for VW," auto industry analyst Ferdinand Dudenhoeffer said. “Despite its many brands, VW so far has no real competence in the rapidly growing low-cost car segment," he added.

Partner Problems

The global auto industry has a chequered history of equity partnerships. Most have succumbed to pressure for companies to free up cash, if not ended in acrimonious failure.

Suzuki said it plans to accelerate vehicle development on its own.

“I don’t think there is any immediate impact, but over the long term, this could be a big problem because to develop very good or efficient diesel or hybrid (electric vehicle) by itself is going to cost the company (Suzuki) an enormous amount," said Koji Endo, senior analyst at Advanced Research Japan in Tokyo.

“Suzuki might start looking at some other options, including finding a new partner, but at this point, it seems the candidates are very limited," Endo said.

Suzuki’s divorce filing comes after Volkswagen said on Sunday a deal by the Japanese company to source diesel engines from Fiat hurt cooperation.

VW was annoyed that Suzuki stuck with long-time engine partner Fiat late in June when picking it to supply its Hungarian-built SX4 crossover with a 1.6-litre diesel engine.

Suzuki has been buying 2.0-litre diesel engines from Fiat Powertrain Technologies since 2006 for the SX4, manufactured in Esztergom together with the Fiat Sedici, which shares the same underpinnings.

Ahead of its announcement, Suzuki shares closed down 2.8%, compared with a 2.3% dip in the benchmark Nikkei 225 index.

Volkswagen shares were down 2.4% at 02:15 pm.

Stalled Partnership

After agreeing to cooperation in 2009, VW and Suzuki have no joint projects and relations have headed south. Suzuki in July insisted there was a “need to return to the starting point, including the ownership ratio."

Suzuki objected to VW classifying it as an associate in its annual report, saying it could “significantly influence financial and operating policy decisions".

The deal with Volkswagen is not the first time the Japanese carmaker has tied itself to one of the big global automakers.

In 1998, Suzuki entered into a strategic partnership with General Motors, which took a 17.4% stake in the Japanese firm.

That alliance began to unravel in 2006 when the US car company sold most of its stake as it scrambled for cash amid ballooning losses.

Other unsuccessful combinations have included Germany’s Daimler and Detroit-based Chrysler, which ended during the financial crisis. DaimlerChrysler’s partnership with Mitsubishi Motors ended in 2005 after five years.